Tags: SPH | energy | MLP | gas

Suburban Propane an Alternative MLP

By    |   Tuesday, 09 Aug 2011 12:50 PM

Many investment advisors now recommend master limited partnerships (MLPs) as a tax-advantaged and relatively safe income investment. Yields for many MLPs, which are typically in the energy delivery business, exceed 6 percent.

Suburban Propane Holdings (SPH) is a bit different from the bulk of major MLPs, which consist of natural gas pipelines. Suburban Propane distributes propane, fuel oil, and related products and services around the country. Its shares recently offered a yield of 8.3 percent.

The company’s core propane business benefits from the fact that most of its customers live in rural areas where they don’t have access to natural gas as an alternative fuel. And with home appliances built for specific fuel sources, switching from propane wouldn’t be easy, according to a Morningstar analysis.

In Suburban Propane’s fiscal third quarter ended June 25, earnings before interest, taxes, depreciation, and amortization (EBITDA) totaled $10 million, up 6 percent from $9.4 million a year earlier.

Excluding the effects of unrealized mark-to-market adjustments on derivatives, EBITDA rose by even more — 13 percent to $10.3 million in the latest quarter from $9.1 million a year earlier.

Revenue climbed 9 percent, to $216.6 million, as higher commodity prices boosted Suburban Propane’s prices, offsetting lower sales volume.

Restructuring payoff

The company is starting to see a payoff from the field restructuring that it began more than a year ago, says CEO Michael Dunn. “Our balance sheet remains strong. We continued to fund all working capital needs from operating cash flow, and we ended the quarter with more than $161 million of cash on hand,” he said.

While Citigroup cut its rating on Suburban Propane shares to hold from buy shortly before the earnings report, Wells Fargo and Standard & Poor’s analysts lifted their ratings after the report. Wells Fargo shifted to outperform from market perform and Standard & Poor’s moved to buy from hold. Suburban Propane next reports around Dec. 4.

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Many investment advisors now recommend master limited partnerships (MLPs) as a tax-advantaged and relatively safe income investment. Yields for many MLPs, which are typically in the energy delivery business, exceed 6 percent.Suburban Propane Holdings (SPH) is a bit...
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Tuesday, 09 Aug 2011 12:50 PM
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